Purpose: This exercise will illustrate how an installment note payable affects the financial statements.

The use of a mortgage note is a common vehicle to finance the acquisition of long-lived tangible assets. A mortgage note usually requires the borrower to repay the loan by equal periodic payments over the life of the loan. Each payment goes to cover the interest accrued during the time segment since the previous payment and to reduce the principal balance.

Instructions

Using the amortization schedule from Exercise 14-7, answer the following questions:

(a) How much interest expense would be reported on the income statement for the year ending December 31, 2014?

(b) How would the two payments during the year 2014 of $32,097.05 each be reflected in the statement of cash flows for the year ending December 31, 2014?

(c) How would the balance of $375,201.09 at December 31, 2014 be reported on a balance sheet as of that date?